J.P.Morgan’s Technical Analysis Team Recommends 10-Year Breakeven Wideenrs

Late Tuesday J.P.Morgan’s technical analysis team noted that “10-Year TIPS breakevens have staged a reversal after the recent narrowing move retraced roughly two-thirds of the fall widening trend and threatened to move back into the summertime trading range. In our view, the breakevens and broader market price action favours a period of near-term widening after the market held anticipated support at the 242-243bp Sep breakout zone. Note the 200-DMA and the Sep 78.6% retrace sit just through that area at 240.5bp and 239bp, respectively. As such, we suggest entering into a short-term widening position. Overhead, initial resistance sits at the 256bp 50-DMA and 256-264bp late-Nov intraday pivots. Sustained closes through there would add confidence to our view. To higher levels, next resistance is layered at the 269bp Oct 26 high and then the 277bp Nov 15 peak. That not only marks a new cycle wide, but also represents the highest breakevens level since the 2004-2006 cycle peaks. We would expect the breakevens widening trend to stall on a retest of those levels. We also think breakevens settles into a range through the first half of next year, with those cycle peaks defining the upper end of that pattern. On the downside, secondary support is clustered in the 215-227bp area. Parameters there include the summer 2021 range lows, and Apr-Oct 2018 range resistance.”

• They recommended entering a the 10-Year TIPS widener position at market, with a target of 275bp and a stop set just through 239bp.